Valmet unique offering with process technology, automation and services. Roadshow material June 2015

Transcription

1 Valmet unique offering with process technology, automation and services Roadshow material June 2015

2 Agenda Valmet Roadshow Valmet overview Investment highlights Financials Automation excellent strategic fit Conclusions Appendix

3 Valmet overview

4 Valmet has over 200 years of industrial history 1797 Tamfelt 1841 Götaverken 1856 Tampella 1858 Beloit 1860 KMW 1868 Sunds Defibrator 1951 Valmet Several M&As i.e KMW 1987 Wärtsilä paper finishing machinery 1992 Tampella Papertech End of 2013 Demerger to Valmet and Metso 1942 Rauma- Raahe 1999 Metso created through merger of Valmet and Rauma Key acquisitions 2000 Beloit Technology 2006 Kvaerner Pulping Kvaerner Power 2009 Tamfelt 2015 Metso Process Automation Systems to Valmet 4

5 Key figures 2014 Excluding Automation business line Orders received EUR 3,071 million Net Sales EUR 2,473 million 21% Net sales split by business line 40% Net sales split by geographic area 15% 18% EBITA before NRI 1 EUR 106 million 11% 13% Employees 10,464 Market position #1-2 Services #1-2 Pulp #1-3 Energy #1-2 Paper, board, tissue 39% Services Pulp and Energy Paper 43% North America South America EMEA China Asia-Pacific 1) NRI = non-recurring items 5

6 Our four business lines serve the same customer base Services Pulp and Energy Paper Automation Description Market position Mill and plant improvements, roll and workshop services, parts and fabrics, and life-cycle services ,011 1, Technologies and solutions for pulp production, power generation, and biomass conversion #1-2 Pulping #1-2, Bioenergy generation #1-2 Market size EUR 7.5 bn Pulp EUR 1.4 bn, Energy EUR 2.0 bn Customers Main competitors Companies mainly in the pulp, paper and energy industries Voith, Andritz, Albany, Xerium Technologies, AstenJohnson, Foster Wheeler, Alstom etc. In pulp, mechanical and chemical pulp producers as well as companies in the panelboard industry Andritz in Pulp; Andritz and Foster Wheeler in Energy; Andritz main global competitor in biomass , Technologies and solutions for board, tissue, and paper Board #1-2, Tissue #1, Paper #1-2 Board EUR 1.0 bn, Tissue EUR 0.6 bn, Paper EUR 0.6 bn Mainly paper companies as well as board and tissue producers Voith and Andritz Net sales bn, 40% bn, 39% bn, 21% bn Supplies and develops automation and information management systems, applications and services Analyzers #1, QCS 1 #1-2, DCS 2 #1-3 DCS 2 EUR 1.6 bn, QMS 3 >EUR 0.2 bn, Analyzers <EUR 0.2 bn Companies in the pulp, energy, paper and process industries ABB, Honeywell, Emerson, Siemens, Voith, Paperchine, Procemex, BTG, PulpEye etc ) QCS = Quality Control Systems 2) DCS = Distributed Control Systems 3) QMS = Quality Management System 4) Net sales by business line on a carve-out basis for the periods indicated (excl. Intra-Metso net sales). 5) Percent of total, excluding Automation (2014 figures)

7 Strong global presence provides a good platform for growth North America Large installed base to be served Capital project opportunities in pulp, energy, board, and tissue 504 (18%) 1,355 (11%) EMEA Large installed base to be served Machine closures in printing and writing Capital project opportunities in pulp, board, tissue, and bioenergy 1,219 (44%) 7,511 (62%) China Services growth potential through growing installed base Capital project opportunities in board and tissue 293 (11%) 2,054 (17%) South America Services growth potential through growing installed base Capital project opportunities in pulp, tissue and bioenergy 347 (12%) 508 (4%) Asia-Pacific Services growth potential through growing installed base Capital project opportunities in pulp, energy, board, and tissue 407 (15%) 699 (6%) Illustrative net sales in 2014 (EUR million and % of total) Calculated number of employees in March, 2015 (number of employees and % of total) 7

8 Valmet s way forward Our Mission Converting renewable resources into sustainable results Our Strategy Valmet develops and supplies competitive technology and services to the pulp, paper and energy industries. We are committed to moving our customers performance forward. Our Must-Wins Customer excellence Leader in technology and innovation Excellence in processes Winning team Our Vision To become the global champion in serving our customers Our Values create and strengthen our culture Customers - We move our customers performance forward Renewal We promote new ideas to create the future Excellence We improve every day to deliver results People We work together to make a difference Megatrends Need for renewable solutions Bio-economy and climate change Increase in standards of living 8

9 Investment highlights

10 Investment highlight summary 1 Strong market position in growing markets 2 Growing, profitable and stable service and automation business with EUR 1.3 billion sales 3 Strong in cyclical capital business with long-term growth potential and increased flexibility in cost structure 4 Unique offering with process technology, automation and services 5 Continued focus on profitability, more effort into renewal 10

11 Strong market position in growing markets Services Pulp Energy Board Tissue Paper Automation #1-2 #1-2 #1-3 #1-2 #1 #1-2 #1-3 ~2% p.a. 7.5 bn ~1% p.a. 1.4 bn ~1% p.a. 2.0 bn ~3% p.a. 1.0 bn ~3% p.a. 0.6 bn ~-1% p.a. 0.6 bn ~1% p.a. 2.0 bn Customers outsource noncore operations Capacity increases in China, South America and Asia-Pacific Growth in paper, board, and tissue consumption in Asia Need for virgin wood pulp, as recycling rates can not grow infinitely Increased size of pulp lines and mills Growth in energy consumption Demand for sustainable energy Modernization of aging plants Incentives and regulation World trade, e- commerce and emerging markets growth drive packaging Shift from plastic packaging to renewable materials Growth in emerging markets Rise in purchasing power and living standards in emerging markets Increasing role of digital media decreases demand for printing and writing papers Some growth in emerging markets Investments in new pulp and paper machines and power plants Ageing machines and installed automation systems Anticipated long-term market growth Estimated market size for current offering (EUR) Market drivers Source: Leading consulting firms, RISI, management estimates 11

12 Growing, profitable and stable service and automation business with EUR 1.3 billion sales Growing Services net sales growth on average over 3% p.a. during the last 5 years Slight growth in Automation net sales over the last 10 years Profitable Relatively stable margins in Automation during the last 10 years, EBITA margin 10 12% Stable Services and Automation together approximately EUR 1.3 billion of stable business 12

13 Strong in cyclical capital business with long-term growth potential and increased flexibility in cost structure Pulp and Energy Market position: #1-3 Headcount reduction 1 : ~500 Capacity cost reduction: 10% (Capacity cost to sales 24% in 2014) Paper Market position: #1-2 Headcount reduction 1 : ~800 Capacity cost reduction: 20% (Capacity cost to sales 47% in 2014) 1) Reduction in number of employees during

14 Unique offering with process technology, automation and services Process technology Customer Valmet is a technology and service company with full automation offering Strengthened competitiveness from combination of paper, pulp and power plant technology, process know-how and automation Full scope offering gives better differentiation from competitors Services Automation 14

15 Continued focus on profitability, more effort into renewal Continued focus on profitability improvement measures Improve project and service margin Reduce quality costs and lead times Savings in procurement Continue to improve cost competitiveness Improve cost competitiveness to increase gross profit Increased focus on renewal Constant improvement of technology and offering Results in research and development, e.g. OptiConcept M Improvement in customer relations Development of personnel Acquiring Process Automation Systems renews Valmet and strengthens know-how 15

16 Financials

17 Financial targets Growth Net sales growth to exceed market growth Profitability EBITA 1 before non-recurring items: 6-9% ROCE Return on capital employed (pre-tax), ROCE 2 : minimum of 15% Dividend policy Dividend payout at least 40% of net profit 1) EBITA before non-recurring items = operating profit + amortization + non-recurring items 2) ROCE (pre-tax) = ( profit before taxes + interests and other financial expenses ) / ( balance sheet total - non-interest-bearing liabilities ) 17

18 Q1/2015 in brief Orders received and net sales increased in services Services orders received increased compared with Q1/2014 Net sales increased compared with Q1/2014 in Services Orders received decreased and net sales increased in capital business Orders received decreased in Pulp and Energy, and Paper business lines from the high levels in Q1/2014 Net sales increased in Pulp and Energy and decreased in Paper compared with Q1/2014 Order backlog at EUR 2.1 billion Order backlog EUR 66 million higher than at year-end 2014 Focus on profitability improvement Gross profit increased by EUR 16 million compared with Q1/2014 SG&A 1 expenses increased by EUR 3 million compared with Q1/2014 EBITA 2 -margin improved but is below targeted level Strong balance sheet, negative cash flow provided by operating activities Net debt EUR -134 million, and gearing -17% Cash flow provided by operating activities EUR -20 million 1) Selling, general and administrative expenses before non-recurring items 2) EBITA = Earnings before interest, taxes and amortization and non-recurring items 18

19 Key figures Q1/2015 EUR million Q1/2015 Q1/2014 Change Orders received 580 1,101-47% Order backlog 1 2,064 1,972 5% Net sales % EBITA >100% % of net sales 3.5% 0.7% EBIT % of net sales 2.4% -1.5% Earnings per share, EUR Return on capital employed (ROCE), before taxes 4 6% -2% Cash flow provided by operating activities Gearing 1-17% -5% Non-recurring items: EUR 0 million in Q1/2015 (EUR -6 million in Q1/2014) 1) At the end of period 2) Before non-recurring items 3) After non-recurring items 4) Annualized 19

20 EBITA-margin increased compared with Q1/2014 Net sales and EBITA before NRI (EUR million) % 5.5% % % EBITA target 6 9% 0.7% Services Capital EBITA-% Q1/14 Q2/14 Q3/14 Q4/14 Q1/ EBITA before NRI (MEUR) Net sales and profitability increased compared with Q1/ Changes in foreign exchange rates 1 increased net sales by EUR 20 million and EBITA by EUR 1 million Exceptionally many POC 2 milestones in Q4/2014, while less in Q1/ ) Compared with the exchange rates for January March, ) POC = Percentage of completion

21 Guidance and short-term market outlook Guidance for 2015 (as given on February 6, 2015) Guidance for 2015 Valmet estimates that, including the acquisition of Process Automation Systems, net sales in 2015 will increase in comparison with 2014 (EUR 2,473 million) and EBITA before non-recurring items in 2015 will increase in comparison with 2014 (EUR 106 million). Short-term market outlook Q2/2014 Q3/2014 Q4/2014 Q1/2015 Services Satisfactory Satisfactory Satisfactory Satisfactory Pulp and Energy Pulp Energy Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Good Weak Paper Board and Paper Good Good Good Good Tissue Satisfactory Satisfactory Satisfactory Satisfactory Automation Satisfactory 21

22 Automation excellent strategic fit

23 Valmet becomes a stronger company as a result of acquiring Automation The acquisition was announced on January 15, 2015 and closed on April 1, 2015 The acquisition has an excellent strategic fit Combination of Valmet and Automation creates a unique customer offering Automation is a strong, established business Acquisition makes Valmet more stable and more profitable 23

24 Combination of Valmet and Automation creates a unique customer offering Valmet is a technology and service company with full automation offering Strengthened competitiveness from combination of paper, pulp and power plant technology, process know-how and automation Full scope offering gives better differentiation from competitors 80% of Automation s sales to Valmet s current customer industries Valmet is a unique company Process technology Customer Services Automation 24

25 Automation is a strong, established business Long-term customer relations High level of technology and know-how Strong service business, based on large installed base and captive business model ~1,600 automation professionals working close to customers at ~80 locations around the world Significant proprietary know-how Good financial track record and stable cash flow 25

26 Valmet with Automation Increased stability and improved profitability Illustrative net sales in % 15% 19% 36% 11% 18% 13% Improving profitability Automation has a solid financial track record - Historically continuous double-digit EBITA margin of 10 12% - Stable net sales, with slight growth 35% Services Pulp and Energy Paper Automation 44% North America EMEA Asia-Pacific South America China Increases Valmet s profitability - Valmet s financial target: EBITA margin of 6 9% Increasing stability Valmet will have approximately EUR 1,300 million of stable business - Existing services EUR ~1,000 million - Automation EUR ~300 million 1) Illustrative net sales split when Valmet and Automation combined (2014 figures). 26

27 Conclusion

28 Investment highlight summary 1 Strong market position in growing markets 2 Growing, profitable and stable service and automation business with EUR 1.3 billion sales 3 Strong in cyclical capital business with long-term growth potential and increased flexibility in cost structure 4 Unique offering with process technology, automation and services 5 Continued focus on profitability, more effort into renewal 28

29 Important notice It should be noted that certain statements herein which are not historical facts, including, without limitation, those regarding expectations for general economic development and the market situation, expectations for growth, profitability and investment willingness, expectations for company development, growth and profitability and the realization of synergy benefits and cost savings, and statements preceded by anticipates, believes, estimates, expects, foresees or similar expressions, are forward-looking statements. Since these statements are based on current decisions and plans, estimates and projections, they involve risks and uncertainties which may cause the actual results to materially differ from the results currently expressed. Such factors include, but are not limited to: 1) general economic conditions, including fluctuations in exchange rates and interest levels which influence the operating environment and profitability of customers of the company or economic growth in the company s principal geographic markets. 2) industry conditions, intensity of competition situation, especially potential introduction of significant technological solutions developed by competitors, financial condition of the customers and the competitors of the company, 3) the company s own operating factors, such as the success of production, product development and project management and the efficiencies therein including continuous development and improvement 4) the success of pending and future acquisitions and restructuring. 29

30 Appendix Management, ownership and share price development Financials Automation Offering Market statistics

31 Appendix Management, ownership and share price development

32 Experienced Executive Team Corporate Pasi Laine President and CEO Share ownership: 49,021 Markku Honkasalo CFO Share ownership: 5,148 Kari Saarinen SVP, Strategy and Operational Development Share ownership: 6,325 Julia Macharey SVP, Human Resources Share ownership: 2,591 Anu Salonsaari-Posti SVP, Marketing & Communications Share ownership 1 : 1,000 Business lines Jukka Tiitinen Business Line President, Services Share ownership 2 : 23,770 Bertel Karlstedt Business Line President, Pulp and Energy Share ownership: 2,000 Jari Vähäpesola Business Line President, Paper Share ownership: 12,391 Sakari Ruotsalainen Business Line President, Automation Share ownership: 8,090 Areas 32 William Bohn Area President, North America Share ownership: 6,652 Celso Tacla Area President, South America Share ownership: 18,365 Hannu Mälkiä Area President, EMEA Share ownership: 19,622 Aki Niemi Area President, China Share ownership: 8,000 As Hannu Mälkiä has decided to retire in June 2015, Vesa Laine has been appointed Area President of Valmet's EMEA area as of August 1, Mr. Simola joins Valmet from Stora Enso, where he is currently employed as Senior Vice President, Consumer Board Division. Hannu T. Pietilä Area President, Asia-Pacific Share ownership: 8,432

33 Experienced Executive Team Corporate Pasi Laine President and CEO Share ownership: 49,021 Markku Honkasalo CFO Share ownership: 5,148 Kari Saarinen SVP, Strategy and Operational Development Share ownership: 6,325 Julia Macharey SVP, Human Resources Share ownership: 2,591 Anu Salonsaari-Posti SVP, Marketing & Communications Share ownership 1 : 1,000 Business lines Jukka Tiitinen Business Line President, Services Share ownership 2 : 23,770 Bertel Karlstedt Business Line President, Pulp and Energy Share ownership: 2,000 Jari Vähäpesola Business Line President, Paper Share ownership: 12,391 Sakari Ruotsalainen Business Line President, Automation Share ownership: 8,090 Areas 33 William Bohn Area President, North America Share ownership: 6,652 Celso Tacla Area President, South America Share ownership: 18,365 Hannu Mälkiä Area President, EMEA Share ownership: 19,622 Aki Niemi Area President, China Share ownership: 8,000 As Hannu Mälkiä has decided to retire in June 2015, Vesa Laine has been appointed Area President of Valmet's EMEA area as of August 1, Mr. Simola joins Valmet from Stora Enso, where he is currently employed as Senior Vice President, Consumer Board Division. Hannu T. Pietilä Area President, Asia-Pacific Share ownership: 8,432

34 Board of Directors Bo Risberg (b. 1956) Chairman of the Board Swedish citizen Mikael Von Frenckell (b. 1947) Vice Chairman of the Board Finnish citizen Friederike Helfer (b. 1976) Board member Austrian citizen BSc in Mech. Engineering, MBA Selected experience: - CoB of Piab Group Holding - Vice CoB of Grundfos A/S and IMD - Member of the BoD of Norstjernan AB and Trelleborg AB Share ownership: 3,922 Independent of company: Yes Independent of owners: Yes MSc in Social Sciences Selected experience: - Vice CoB of Metso since 2012, board member since Member of the BoD of Antti Ahlströmin Perilliset Oy and Sponsor Capital Oy Share ownership: 107,989 Independent of company: Yes Independent of owners: Yes MSc in Real Estate Development, Diplom- Ingenieur in Urban Planning, CFA charterholder Selected experience: - Partner at Cevian Capital, joined Cevian Capital in Engagement Manager at McKinsey ( ) Share ownership: 4,187 Independent of company: Yes Independent of owners: Yes Erkki Pehu- Lehtonen (b. 1950) Board member Finnish citizen MSc in Mechanical Engineering Selected experience: - Member of Metso board since CoB of Raute Corporation - President and CEO of Pöyry ( ) Share ownership: 7,366 Independent of company: Yes Independent of owners: Yes Lone Fønss Schrøder (b. 1960) Board member Danish citizen MSc in Economics, Accounting; LL.M. Selected experience: - Member of the BoD of Saxobank A/S, Aker Solutions, Volvo PV AB, NKT Holding A/S, Schneider SE, Bilfinger Berger SE Share ownership: 5,235 Independent of company: Yes Independent of owners: Yes Rogério Ziviani (b. 1956) Board member Brazilian citizen BSc in Business Management, MSc in Business Administration Selected experience: - Member of the BoD of Contax Participações S.A and HSBC SRI FI Sustainability Fund - Member of the Brazilian Institute of Corporate Governance Share ownership: 4,187 Independent of company: Yes Independent of owners: Yes 34

35 Largest shareholders on May 31, 2015 Based on the information given by Euroclear Finland Ltd. # Shareholder name Number of shares % of shares and votes 1 Solidium Oy 1 16,695, % 2 Nordea Funds 4,562, % 3 Skagen Global Verdipapirfond 3,202, % 4 Ilmarinen Mutual Pension Insurance Company 3,092, % 5 Varma Mutual Pension Insurance Company 2,908, % 6 The State Pension Fund 1,520, % 7 Keva 1,502, % 8 Mandatum Life Insurance Company Limited 1,217, % 9 Skagen Global II Verdipapirfond 985, % 10 Sigrid Jusélius Foundation 610, % 10 largest shareholders, total 36,296, % Other shareholders 113,567, % Total 149,864, % Flagging notifications Date Shareholder name Number of shares % of shares and votes February 13, 2015 Cevian Capital Partners Ltd. 10,323, % November 6, 2014 Nordea Funds Oy 7,240, % October 15, 2014 Franklin Templeton Institutional, LLC 7,517, % March 10, 2014 Cevian Capital Partners Ltd. 20,813, % 1) A holding company that is wholly owned by the Finnish State 35

36 Ownership structure on May 31, % 11.1% Nominee registered and non-finnish holders Finnish institutions, companies and foundations 55.1% Solidium Oy* 19.8% Finnish private investors Sector Number of shareholders % of total shareholders Number of shares % of shares Nominee registered and non-finnish holders % 82,532, % Finnish institutions, companies and foundations % 29,669, % Solidium Oy ,695, % Finnish private investors 44, % 20,967, % Total 48, % 149,864, % The ownership structure is based on the classification of sectors determined by Statistics Finland. 1) A holding company that is wholly owned by the Finnish State 36

37 Share of non-finnish holders and number of shareholders 57% 61,000 55% 53% 51% 49% 47% 59,000 57,000 55,000 53,000 51,000 49,000 45% 47,000 Non-Finnish holders (LHS) Total number of shareholders (RHS) 37

38 01/14 01/14 01/14 02/14 02/14 03/14 03/14 04/14 04/14 05/14 05/14 06/14 06/14 07/14 07/14 07/14 08/14 08/14 09/14 09/14 10/14 10/14 11/14 11/14 12/14 12/14 01/15 01/15 01/15 02/15 02/15 03/15 03/15 04/15 04/15 05/15 05/15 Million shares 01/14 01/14 01/14 02/14 02/14 03/14 03/14 04/14 04/14 05/14 05/14 06/14 06/14 07/14 07/14 07/14 08/14 08/14 09/14 09/14 10/14 10/14 11/14 11/14 12/14 12/14 01/15 01/15 01/15 02/15 02/15 03/15 03/15 04/15 04/15 05/15 05/15 Share price development and trading volume Valmet OMX Helsinki (rebased) Valmet volume (million shares) 38

39 Appendix Financials

40 Latest development in sustainability Valmet has defined a sustainability agenda as part of the implementation of its business strategy Valmet has been selected for the world s leading Dow Jones Sustainability Index among three (3) other Finnish companies Valmet scored high points in CDP climate change index and was included in the Nordic Climate Disclosure Leadership Index (CDLI) Join the discussion to develop Valmet s sustainability performance further at Valmet s website 40

41 Customer activity increased in 2014 Announced orders during H1/2014 Date Description Business line Country Value Jan 9 Prehydrolysis system (pilot scale) Pulp and Energy Netherlands Not disclosed Jan 27 Multi-fuel boiler Pulp and Energy Finland Not disclosed Jan 31 Upgrade of recovery boiler and power boiler Pulp and Energy Sweden and Bulgaria Not disclosed Feb 7 Key technology for pulp mill Pulp and Energy Indonesia Approximately EUR 340 million Feb 10 Paper machine rebuild Paper Austria Not disclosed (typically above EUR 20 million) Feb 13 Heat recovery steam generator Pulp and Energy Sweden Nearly EUR 10 million Feb 17 Bleach plant rebuild Pulp and Energy Portugal Not disclosed (typically above EUR 20 million) Feb 27 Wood-chip-fired heating plant Pulp and Energy Finland Around EUR 27 million Mar 7 Containerboard line Paper Vietnam Not disclosed Mar 19 Tissue production line Paper Mexico Not disclosed (typically EUR million) Mar 27 CompactCooking G2 cooking plant Pulp and Energy Sweden About EUR 30 million Mar 27 Waste to energy boiler Pulp and Energy Sweden Not disclosed Apr 3 Advantage tissue production line Paper Turkey Not disclosed Apr 28 Large-scale boiler plant Pulp and Energy Finland Typically one third of the total investment of EUR 260 million. May 5 Pulp and board production lines Paper, and Pulp and Energy China Around EUR 115 million May 6 Finalized order agreement for pulp dryers Pulp and Energy Brazil A project of this size and scope is typically valued at EUR million. May 13 Paper machine grade conversion rebuild Paper Finland Around EUR 30 million May 20 Complete boiler plant Pulp and Energy Hungary About EUR 50 million May 20 Complete boiler plant Pulp and Energy Czech Republic About EUR 50 million May 21 Part of a major pulp mill rebuild Pulp and Energy Thailand Around EUR 30 million May 21 A boiler plant Pulp and Energy Finland Around EUR 30 million Jun 3 Major rebuild and new equipment for pulp mill Pulp and Energy Sweden Around EUR 200 million Jun 16 Part of a pulp mill upgrade Pulp and Energy Portugal Not disclosed Jun 24 New sizing technology Paper Germany Not disclosed Jun 27 Complete Advantage ThruAir tissue line Paper USA Not disclosed 41

42 Customer activity increased in 2014 Announced orders during H2/2014 Date Description Business line Country Value Jul 2 Advantage DCT 200 tissue line Paper Middle East Not disclosed Jul 8 Wood chipping plant Pulp and Energy Sweden Around EUR 20 million Aug 4 Advantage NTT line Paper USA Not disclosed Aug 15 Paper machine grade conversion rebuild Paper Thailand Typically valued at around EUR 20 million Aug 18 OptiConcept M board production line Paper USA Not disclosed Aug 20 Tissue production line Paper Turkey Not disclosed Sep 11 Flue-gas cleaning system Pulp and Energy Finland Roughly EUR 10 million Oct 7 Equipment for evaporator train upgrade Pulp and Energy USA Not disclosed Oct 13 Biomass based power plant Pulp and Energy Sweden About EUR 30 million Oct 30 Advantage DCT 200HS tissue line Paper China Not disclosed Nov 18 Flue gas scrubber Pulp and Energy Finland Not disclosed Nov 19 Press section rebuild Paper Czech Republic Not disclosed Nov 20 Advantage DCT 200HS tissue line Paper Poland Not disclosed Dec 3 A winder and auxiliaries Paper Finland Not disclosed Dec 8 Flue-gas cleaning and condensation plant Pulp and Energy Finland Around EUR 8 million Dec 15 New machine for folding boxboard production Paper Sweden Typically valued at around EUR million 42

43 Announced orders in 2015 Date Description Business line Country Value Jan 23 Key board machine solutions Paper China Not disclosed Feb 4 Flue-gas cleaning and condensation plant Pulp and Energy Finland Around EUR 8 million Feb 17 Equipment for fluff conversion project Pulp and Energy, and Paper USA Not disclosed Mar 2 OptiConcept M containerboard line Paper Taiwan Not disclosed Mar 3 Softwood line rebuild Pulp and Energy Sweden Not disclosed Mar 11 Biomass based boiler plant Pulp and Energy Finland Valmet s delivery slightly more than half of EUR 45 million total investment Mar 30 Tissue machine rebuild Paper Turkey Not disclosed Apr 20 Key technologies for paper machine grade conversion Paper Finland Valmet delivery is a part of customer's total EUR 70 million equipment order Apr 22 Key technologies to bioproduct mill Pulp and Energy Finland About EUR million Jun 9 Modernize automation and remote control Automation Finland Not disclosed Jun 16 Upgrade of the evaporation plant Pulp and Energy Sweden Not disclosed (a project of this type and scope is typically valued at around EUR 10 million) Jun 23 Repeat order for two energy recovery systems Paper Italy and Poland Not disclosed Jun 24 Automation to a new waste-to-energy plant Automation UK Not disclosed (Typically the order value of automation system deliveries ranges from below EUR 1 million to EUR 3 million) 43

44 Orders received declined from the high level in Q1/2014 Orders received (EUR million), by business line Orders received (EUR million), by area 1,400 3,500 1,400 3,500 1,200 1, ,101 1, Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Services (LHS) Pulp and Energy (LHS) Paper (LHS) Last 4 quarters (RHS) 3,000 2,500 2,000 1,500 1, ,200 1, ,101 1,023 3, , , , , Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 North America (LHS) South America (LHS) EMEA (LHS) China (LHS) Asia-Pacific (LHS) Last 4 quarters (RHS) Orders received increased in Services Orders received decreased in Pulp and Energy Orders received decreased in Paper Orders received increased in South America and China 44

45 Order backlog at EUR 2.1 billion Order backlog (EUR million) Structure of order backlog 3,000 2,500 2,000 1,500 1,972 2,406 2,312 1,998 2,064 ~25% 1,000 ~75% Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Services business Capital business About 75% of the order backlog is currently expected to be realized as sales during 2015 Approximately 25% of the order backlog relates to the Services business line 45

46 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Growth in orders received and net sales in Services Orders received (EUR million) Net sales (EUR million) : EUR 1,055 million ,200 1, : EUR 989 million ,200 1, Orders received (LHS) Orders received, last 4 quarters (RHS) Net sales (LHS) Net sales, last 4 quarters (RHS) Services orders received increased compared with Q1/ Orders received increased in North America, South America, EMEA and Asia- Pacific, and decreased in China - Orders received remained stable compared with Q1/2014 in Fabrics and increased in all other business units - Changes in foreign exchange rates 1 increased orders received by approximately EUR 16 million Net sales increased compared with Q1/2014 1) Compared with the exchange rates for January March,

47 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Orders received decreased and net sales increased in Pulp and Energy Orders received (EUR million) Net sales (EUR million) 2014: EUR 1,344 million 2014: EUR 956 million ,600 1,400 1,200 1, ,600 1,400 1,200 1, Orders received (LHS) Orders received, last 4 quarters (RHS) Net sales (LHS) Net sales, last 4 quarters (RHS) Orders received decreased compared with Q1/ Orders received increased in South America and North America, and decreased in other areas - Orders received decreased in both Pulp and Energy Net sales increased compared with Q1/

48 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Orders received and net sales decreased in Paper Orders received (EUR million) Net sales (EUR million) 2014: EUR 671 million 2014: EUR 528 million Orders received (LHS) Orders received, last 4 quarters (RHS) Net sales (LHS) Net sales, last 4 quarters (RHS) Orders received decreased compared with Q1/ Orders received increased in China and South America and decreased in other areas - Orders received increased in Board and Paper, and decreased in Tissue Net sales decreased compared with Q1/2014 Timing of POC 1 milestones had a negative impact on net sales in Q1/2015 1) POC = Percentage of completion 48

49 Q1/2014 Q2/2014 Q3/2014 Q4/2014 Q1/2015 Q1/2014 Q2/2014 Q3/2014 Q4/2014 Q1/2015 Good development in gross profit Gross profit (EUR million and % of net sales) SG&A (EUR million and % of net sales) % % % % % % % % 80 20% 80 20% 60 15% 60 15% 40 10% 40 10% 20 5% 20 5% 0 0% 0 0% EUR million (LHS) % of net sales (RHS) EUR million (LHS) % of net sales (RHS) Gross profit increased Selling, general and administrative expenses (SG&A) increased EUR 3 million, due to changes in foreign exchange rates 1 Further actions to improve gross profit through Must-Win implementation and renewal 1) Compared with the exchange rates for January March,

50 Development of capacity costs and quality costs Capacity costs 1 (EUR million) 1,180 1,141 1, Personnel 12,547 11,765 10, Personnel costs (EUR million) EUR 100 million cost competitiveness program successfully implemented in Higher than planned capacity cost savings - Headcount reduction since Q3/2013 >1,600 employees In , capacity cost will be flat - Despite slightly growing headcount and growth investments in some areas Quality costs (EUR million and % of net sales) By the end of 2016, quality costs reduced by 50% compared to 2012 baseline Implement Lean - Launch Valmet Lean program - Provide Lean training for a wide group - Define and set up Lean measurement system - Each business line and area to have Lean projects Reduce lead times - Utilize Value Stream Mapping and Visual Management - Identify and eliminate waste Reduce quality costs - Consolidate quality feedback systems as feasible - Emphasis on finding root causes and implementing corrective action 1) Capacity cost means total fixed type of own costs which generally do not vary with production levels and which are based on present normal capacity, e.g. wages & salaries, rents & leases, estates & equipment, travel, common functions, telecom expenses, insurances and other outside services 50

51 Strategy implementations through Must-Wins Must-Wins Customer excellence Leader in technology and innovation Excellence in processes Must-Win implementation objectives for 2015 Strengthen our presence close to customers and growth markets Strengthen Key Account Management to enhance growth at the customer Drive services growth through long-term agreements and expanded customer base Improve product cost competitiveness to increase gross profit Drive renewal through biotechnology solutions and new offering Implement Lean to reduce quality costs and lead times Save in procurement Improve health and safety Sales and project management process to improve product margin Continue to improve cost competitiveness Winning team Nurture shared values Drive high performance Continue globalization of our capabilities 51

52 Key Must-Win objectives to improve profitability to the targeted level of 6 9% Improve project and service margin Reduce quality costs and lead times Savings in procurement Improve product cost competitiveness to increase gross profit Harmonization of processes Localization of competencies Better selection of sales cases Development in project management Common quality development approach Quality tools and processes Highlight the importance of quality initiatives and accountability Increase sourcing from cost competitive countries Increase use of sub-contracting Consolidation of shipment and warehouse network Focus on cost efficient design Modularity and standardization 52

53 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Cash flow, net debt, gearing and equity ratio Cash flow provided by operating activities (EUR million) 117 Net debt (EUR million) and gearing (%) Equity to assets ratio (%) 40% 40% 41% 42% 34% % -54-7% % -21% -17% Cash flow (EUR million) Net debt (EUR million) Gearing (%) Equity ratio Change in net working capital was EUR -49 million 1 CAPEX less than depreciation Negative gearing (-17%) and net debt EUR -134 million Equity to assets ratio was negatively affected by drawn bank loans to finance the acquisition of Process Automation Systems, and by dividend payout decision of Annual General Meeting 1) Change in net working capital in the condensed consolidated statement of cash flows 53

54 2010 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 Strong development in net working capital in 2014 Orders received and net working capital (EUR million and %) 1, ,000 Net working capital has been on average -9% of rolling 12 months orders received 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Net working capital (LHS) Average net working capital/rolling 12 months orders received (RHS) Orders received (LHS) Net working capital/rolling 12 months orders received (RHS) Net working capital has always been negative Single big orders have a significant influence on variation of net working capital 54

55 Foreign exchange risk management in Valmet All operating units are required to hedge in full their foreign currency exposures Hedging takes place when firm commitment arises or at the latest immediately after operating units have reported their monthly currency exposure Valmet is not hedging any translation risk arising from subsidiaries equity Intra corporate dividends, loans and deposits shall be hedged when internal decisions have been made Treasury acts as an internal bank for subsidiaries and manages corporate wide foreign currency exposure by hedging Corporate level net exposure towards banks 55

56 Foreign currency exposure The exposure is a net of all assets and liabilities denominated in foreign currencies derived from sales and purchase contracts, projected cash flows and firm commitments A 10 percent appreciation or depreciation of EUR against all other currencies would have an effect of, net of taxes, -/+ EUR 1.5 million on EBITA 56

57 Split of net sales and costs per currency in 2014 Net sales by currency (2014) Costs by currency (2014) BRL 5% RMB 5% Others 7% RMB 8% Others BRL 7% 4% USD 20% EUR 44% USD 14% EUR 52% SEK 20% SEK 15% Sales and costs in different currencies fairly balanced More costs than sales in EUR, vice versa in USD 57

58 Structure of loans and borrowings Interest-bearing debt EUR 445 million as at March 31, 2015 Amount of outstanding interest-bearing debt (EUR millions) Main financing sources Amount Lender EUR 147 million European Investment Bank EUR 100 million EUR 70 million EUR 95 million Skandinaviska Enskilda Banken Swedish Export Kredit Nordic Investment Bank Average maturity of long-term loans is 4.1 years Back-up facilities Amount EUR 200 million syndicated revolving credit facility EUR 200 million domestic commercial paper program Outstanding EUR 0 million EUR 30 million 58

59 Strong balance sheet to support large orders Financial position as of March 31, 2015 (EUR million) ,860 2, Non-current debt Current debt Cash and equivalents Other financial assets Net debt Total equity Balance sheet total Advances received Adj. balance sheet total Net debt EUR -134 million Equity to assets ratio 1 34% Gearing -17% Valmet has a strong balance sheet that enables it to participate in large projects Valmet has long-term liquidity in place 1) Total equity / (Balance sheet total - advances received - billings in excess of cost and earnings of projects under construction) 59

60 High volatility in market activity Orders received 1 (EUR million) 3,225 3,071 1,999 2,584 2,080 2,445 2,182 2,016 Volatility in market activity is high in the capital business 1,585 1,390 1,147 1,362 Capital Services ,145 1,055 1,035 1, ) 2014 actual figures, carve-out figures, Metso s Pulp, Paper and Power segment figures 60

61 Net sales and profitability development, annual Net sales and EBITA before NRI (EUR million) 1 2, % 636 2,925 3,014 2,735 2,703 2,613 2,453 2, % 7.1% 2, % 6.5% 5.6% 6.4% 4.3% 2.1% ,011 1, EBITA target 6-9% Services Capital EBITA-% EBITA before NRI (MEUR) Timing of large projects has had an impact on the level of net sales Good stimulus-driven demand in China supported orders The paper machine market has shifted to smaller and lower-cost machines In 2013, the power generation market was affected by low-cost shale gas and political and economical uncertainty in Europe Profitability improved in 2014 as a result of cost savings 1) Actual figures for Carve-out figures for ; as reported for Metso s Pulp, Paper and Power segment for

62 Key ratios Q1/2015 Q1/2014 Earnings per share, EUR Diluted earnings per share, EUR Equity per share at end of period, EUR Return on equity (ROE), % (annualized) 4% -3% Return on capital employed (ROCE) before taxes, % (annualized) 6% -2% Equity to assets ratio at end of period, % 34% 40% Gearing at end of period, % -17% -5% Cash flow provided by operating activities, EUR million Cash flow after investments, EUR million Gross capital expenditure (excl. business acquisitions), EUR million Business acquisitions, net of cash acquired, EUR million - - Depreciation and amortization, EUR million Number of outstanding shares at end of period 149,864, ,864,619 Average number of outstanding shares 149,864, ,864,619 Average number of diluted shares 149,864, ,864,619 Net interest-bearing liabilities at end of period, EUR million

63 Consolidated statement of income EUR million Q1/2015 Q1/2014 Net sales Cost of goods sold Gross profit Selling, general and administrative expenses Other operating income and expenses, net 4-2 Share in profits and losses of associated companies 0 0 Operating profit 13-8 Financial income and expenses, net -2-2 Profit before taxes 11-9 Income taxes -3 3 Profit / loss 8-6 Attributable to: Owners of the parent 8-6 Non-controlling interests 0 0 Profit / loss 8-6 Earnings per share attributable to owners of the parent: Earnings per share, EUR Diluted earnings per share, EUR

64 Balance sheet as at March 31, 2015 Assets EUR million Non-current assets As at March 31, 2015 As at March 31, 2014 As at December 31, 2014 Intangible assets Goodwill Other intangible assets Total intangible assets Property, plant and equipment Land and water areas Buildings and structures Machinery and equipment Assets under construction Total property, plant and equipment Financial and other non-current assets Investments in associated companies Available-for-sale financial assets Loan and other receivables Derivative financial instruments 0-0 Deferred tax asset Other non-current assets Total financial and other non-current assets Total non-current assets 1,073 1,037 1,040 Current assets Inventories Receivables Trade and other receivables Cost and earnings of projects under construction in excess of advance billings Loan and other receivables Available-for-sale financial assets Derivative financial instruments Income tax receivables Total receivables Cash and cash equivalents Total current assets 1,787 1,280 1,372 Total assets 2,860 2,317 2,412 64

65 Balance sheet as at March 31, 2015 Equity and liabilities EUR million As at March 31, 2015 As at March 31, 2014 As at December 31, 2014 Equity Share capital Reserve for invested unrestricted equity Cumulative translation adjustments Fair value and other reserves Retained earnings Equity attributable to owners of the parent Non-controlling interests Total equity Liabilities Non-current liabilities Non-current debt Post-employment benefits Provisions Derivative financial instruments Deferred tax liability Other non-current liabilities Total non-current liabilities Current liabilities Current portion of non-current debt Current debt Trade and other payables Provisions Advances received Billings in excess of cost and earnings of projects under construction Derivative financial instruments Income tax liabilities Total current liabilities 1,538 1,249 1,408 Total liabilities 2,066 1,545 1,603 Total equity and liabilities 2,860 2,317 2,412 65

66 Condensed Consolidated Statement of Cash Flows EUR million Q1/2015 Q1/2014 Cash flows from operating activities Profit / loss 8-6 Adjustments Depreciation and amortization Dividend income and net interests 1 0 Income taxes 3-3 Other non-cash items 1 5 Change in net working capital, net of effect from business acquisitions and disposals Net interests and dividends received 0 0 Income taxes paid -2-6 Net cash provided by (+) / used in (-) operating activities Cash flows from investing activities Capital expenditure on fixed assets Proceeds from sale of fixed assets 0 3 Proceeds from sale of businesses, net of cash sold - 0 Other 0 0 Net cash provided by (+) / used in (-) investing activities Cash flows from financing activities Redemption of own shares -7 - Net borrowings (+) / payments (-) on current and non-current debt Net investments in available-for-sale financial assets Other -3 - Net cash provided by (+) / used in (-) financing activities Net increase (+) / decrease (-) in cash and cash equivalents Effect of changes in exchange rates on cash and cash equivalents 5 0 Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period

67 Appendix Automation

68 Automation in brief (2014) Supplies and develops automation and information management systems, applications and services Global market leader with #1 Orders market position received in pulp and paper EUR 336 million Net sales EUR 297 million Industry-leading product portfolio Comprehensive services High barriers to entry and a limited Employees ~1,600 number of focused players Position in pulp and paper Net sales by business line ~55% ~45% 9% Net sales by geographic area 9% 19% 7% #1 Analyzers #1-2 Quality control systems #3 Distributed control systems Services business Capital business 56% North America South America EMEA China Asia-Pacific 68

69 Automation offering Distributed Control System (DCS) Quality Control System (QCS) Complete control system platform for several processes: process, machine, drive controls and information management Used for monitoring and controlling distributed equipment in process plants and industrial processes A system that controls process quality Integrates process quality management, measurements and profilers Profilers Profilers control the process as part of the QCS system Analyzers and measurements Equipment that analyzes and helps optimize the process Equipment that measures different variables in industrial processes, e.g. consistency in pulp and paper processes Vision systems High resolution and high speed digital imaging technology, e.g. pulp or paper web inspection and web break analysis system The system improves process runnability and end product quality Performance solutions Advanced process controls for process optimization Condition monitoring in paper, power and process plants Systems for simulating and analyzing industrial production processes 69

70 Strong global presence close to our customers 130 locations in 33 countries Over 100 service centers 80 sales offices 34 production units 15 technology centers Valmet location 70

71 Market position Market position Anticipated long-term market growth ~1% p.a. Estimated market size for the current offering (EUR) 2.0 bn #1-3 #1 Analyzers #1-2 QCS 1 #3 DCS 2 Global market leader with #1 market position in pulp and paper Industry-leading product portfolio Comprehensive services High barriers to entry and a limited number of focused players Market drivers Investments in new pulp and paper machines and power plants Ageing machines and installed automation systems Business focus and opportunities Customers choose an automation provider even for more than a decade High service business content (~45%) On Valmet level, full scope offering gives better differentiation from competitors Combining Valmet technology, process know-how and automation offers growth possibilities and potential to create new solutions for customers 1) QCS = Quality control systems 2) DCS = Distributed control systems Source: Leading consulting firms, RISI, management estimates 71

72 Automation offering and market overview Scope/product Market size Market position in pulp and paper Main competitors Distributed Control System (DCS) DCS for process and machines controls Condition monitoring Information management APC Pulp and paper DCS market: EUR 900 million Power DCS market: EUR 700 million #3 ABB Honeywell Emerson Siemens Yokogawa Quality Management System QCS (Quality Control Systems) Profilers Web inspection and web break analysis systems Estimated market size: >EUR 200 million #1-2 ABB Honeywell Voith Paperchine Procemex Cognex Isra Yokogawa Analyzers and measurements Paper analyzers Pulp analyzers Pulp consistency measurements Estimated market size: <EUR 200 million #1 ABB BTG PulpEye Conductivity measurements Power analyzers 72

73 Recent development Orders received (EUR million) 1 Net sales (EUR million) Process Automation Systems is relatively stable business Customers choose an automation provider for as long as a decade - During this time, servicing and upgrading is needed High service business content (~45%) High-level technology and know-how business with high barriers to entry Strong focus on R&D ensures a high level of technology, know-how and innovations 1) Stand-alone figures 73

74 Balance sheet structure after the acquisition of Process Automation Systems Enterprise value of acquisition EUR 340 million Long-term financing in place Process Automation Systems net asset value 1 approximately EUR 55 million Difference between enterprise value and net asset value will be split roughly equally between goodwill and purchase price allocation Valmet s amortization will increase by approximately EUR 15 million on an annual basis Average maturity will increase to over 4 years Capital employed increases Capital employed will increase with approximately EUR 285 million Illustrative figures Effect on gearing 43 percentage points and on equity ratio 6 percentage points If the transaction would have taken place on December 31, 2014, gearing would be 22% and equity ratio 36% (illustrative figures) 1) Net asset value on June 30,

75 Appendix Offering

76 Full scope offering for the pulp and paper industry Technologies 1 Wood handling 2 Heat and power production 3 Chemical pulping 4 Chemical recovery 5 Pulp drying 6 Recycled fiber 7 Mechanical fiber 8 Stock preparation 9 Board and paper making 10 Tissue making Automation Distributed Control System (DCS) Performance solutions Quality Control System (QCS) Profilers Analyzers and measurements Industrial internet solutions Automation services Process simulators Safety systems and solutions Services Mill and plat improvements Spare and wear parts Paper machine clothing and filter fabrics Roll services Services for evaporation plants, power and recovery boilers Services for environmental equipment

77 Our offering for energy industry and biotechnologies Technologies 1 Fuel handling 2 Gasification 3 Boiler and flue gas cleaning 4 Bio-oil production 5 Modularized power plants 6 Prehydrolysis For biofuels, biomaterials and biochemicals, and bio coal production Automation Distributed Control System (DCS) Performance solutions Analyzers and measurements Industrial internet solutions Automation services Services Plant improvements Rebuilds Performance services Services for environmental equipment Components and spare parts Training

78 Our pulp and energy technology offering Pulp Recovery Energy Biotechnologies Wood handling systems Cooking systems Complete fiber lines Pulp drying systems Evaporation systems Recovery islands Circulating fluidized bed boilers (CYMIC) Bubbling fluidized bed boilers (HYBEX) Biomass and waste gasification Oil and gas boilers Waste heat recovery Air pollution control systems Pyrolysis solutions for bio-oil production LignoBoost for lignin extraction Steam treated pellets production lines Biomass prehydrolysis for further refining to fuels or chemicals 300 complete fiber lines and 350 recovery islands delivered 400 boilers and environmental protection systems delivered 78

79 Our paper technology offering Board and paper Board and paper production lines Recycled fiber lines Tailor made OptiConcept machines OptiConcept M modularized machines Rebuilds Modernizations and grade conversions Stand-alone products From stock preparation to roll handling Over 1,600 board and paper machines delivered Tissue Tissue production lines Advantage DCT Advantage NTT Advantage Thru Air (TAD) Rebuilds Stand-alone products e.g. Yankee cylinders Over 200 tissue lines delivered 79

80 Our automation offering Pulp and paper Energy Oil and gas Marine Advanced automation and process monitoring solutions and services: Distributed Control System (DCS) Valmet DNA Performance solutions Quality Control System (QCS) Profilers Analyzers and measurements Industrial internet solutions Automation services Process simulators Safety systems and solutions Over 4,500 automation systems and over 40,000 analyzers and measurements delivered 80

81 Comprehensive life-cycle services offering and large customer base with significant potential Comprehensive life-cycle services offering Over 2,000 customer mills and plants served globally Spare and wear parts All OEM spare parts and standard parts in Valmet deliveries Inventory management services and process parts, such as consumables and auxiliary products Fabrics Paper machinery clothing Filter fabrics used in the pulp and paper, mining and chemical industries and power plants for various filtration purposes as well as in commercial laundries Mill and plant improvements Plant upgrades Modifications and environmental improvements Troubleshooting Shutdown maintenance Maintenance outsourcing for the entire customer plant Roll and workshop services Maintenance services on rotating equipment: roll covers, spare rolls and roll upgrades Rebuilds for all manufacturers board, tissue, pulp and paper machines Workshop services: pressure part manufacturing, boiler component services, parts to protect and enhance boiler performance and fiber equipment refurbishing Energy and environmental Services for evaporation plants, power and recovery boilers, and environmental equipment 81

82 Continuous investment in research and development to improve customers processes Customers needs Increase production efficiency Improve competitiveness Maximize value of raw materials Widen raw material base Provide high-value end products Develop new innovations and technologies Valmet s R&D focus Modularized and standardized products Energy, water and raw material efficiency Automation technology Biomass conversion technologies Valmet s R&D resources Own R&D centers and pilot facilities Annual R&D spend about EUR 50 million Around 1,800 protected innovations Cooperation with universities and research institutions 82

83 Example of our R&D work - OptiConcept M board and paper machine Cost-efficient, high-quality, safe and flexible board making concept Significant savings in energy, water and raw material use Energy efficiency improvement up to 30% Modular and compact size Short delivery times, quick start-ups, and less production space Functional design brings increased safety and accessibility Design acknowledged in Finnish design competition in

84 Appendix Market statistics

85 Net sales split, by business unit Net sales split, business units (2014) Net sales split, Valmet (2014) 2 Services (EUR 989 million) 1 Pulp and Energy (EUR 956 million) 1 12% 19% Rolls and Workshop Services Mill Improvements 15% Performance Parts Fabrics Energy and Environmental 29% 25% 43% Pulp Energy 57% 11% 8% 3% 8% 15% 7% 20% 10% 9% 5% 4% 85 Paper (EUR 528 million) 1 42% 39% Board Paper Tissue 18% 1) Net sales in ) Illustrative net sales split when Valmet and Automation combined, 2014 figures Rolls and Workshop Services Mill Improvements Performance Parts Fabrics Energy and Environmental Pulp Energy Board Paper Tissue Automation

86 Pulp mill market is cyclical and characterized by large orders Market fluctuates from year to year Market size 1 (EUR million) Valmet Others Valmet is well prepared for the cyclical nature of the business Own capacity has been reduced during the last few years Capacity cost reduced 10% in 2014 Capacity cost to net sales was 24% in , ) Market size based on orders received. Includes all pulp business units, recovery boilers, and evaporation plants 86

87 F 2017F Consumption development Growth in board and tissue consumption is expected to continue while newsprint is declining Paper consumption 1 (Mton) CAGR F Containerboard +3.7% +2.2% Printing & Writing +0.6% +0.1% Cartonboard +2.8% +2.8% Tissue +3.6% +4.5% Newsprint -2.1% -2.4% Newsprint Containerboard Tissue Printing & Writing Cartonboard 1) Source: RISI 87

88 Eastern Europe Western Europe North America Latin America Japan China Rest of Asia Oceania Africa Middle East Paper and board consumption growth trends Paper and board consumption per capita vs. population , , ,500 Population growth in emerging markets is larger than in developed markets , Level of consumption per capita in emerging markets clearly below that in developed markets Consumption per capita, kg (LHS) Population, million (RHS) This offers us longterm growth potential Average global consumption: 53 kg per capita 1) Source: PPI Annual Review 2013 (2012 figures) 88

89 Demand has shifted more towards smaller paper and board machines We are focusing more on modularized and standardized solutions Competition is higher in smaller machines Capacity of start-ups 1, by machine size 47 Mton Valmet s market share 1, by machine size 29 Mton 35 Mton 26 Mton XL L 35-45% 40-60% Competition is lower in larger machine sizes. M S 0% 25-35% Higher number of players in smaller machines S (<200 kton) M ( kton) L ( kton) XL (>500 kton) 1) Source: Pöyry, Valmet 89

90 Eastern Europe Western Europe North America Latin America Japan China Rest of Asia Oceania Africa Middle East Tissue consumption growth trends Tissue consumption per capita vs. population 1 2,500 2,000 1,500 1, New products and consumption models based on tissue are helping increase consumption in developed markets Consumption in emerging markets is still low, but growing Population, million (LHS) Average global consumption: 4.5 kg per capita Consumption per capita, kg (RHS) Offers us long-term growth potential in both developed and emerging markets 1) Source: PPI Annual Review 2013 (2012 figures) 90

91 Tissue market growing long term Recent market reduction due to heavy Chinese investments Competition is high in all areas, Valmet is strongest in North America Capacity of start-ups 1, by area Valmet s market share 1, by area 4 Mton 5 Mton 7 Mton 6 Mton South America APAC ex. China China 5-15% 20-40% 10-20% Number of competitors is low in the Americas and EMEA. North America EMEA 50-65% 30-50% Smaller Chinese companies present in China and Asia EMEA North America China APAC ex. China South America 1) Source: Pöyry, Valmet 91

92 Paper, board, and tissue production trends North America (million tonnes) Europe (million tonnes) Tissue (LHS) Printing & Writing (RHS) Cartonboard (RHS) Newsprint (LHS) Containerboard (RHS) Tissue (LHS) Printing & Writing (RHS) Cartonboard (RHS) Newsprint (LHS) Containerboard (RHS) China (million tonnes) Asia-Pacific (million tonnes) Source: RISI Tissue (LHS) Printing & Writing (RHS) Cartonboard (RHS) Newsprint (LHS) Containerboard (RHS) Tissue (LHS) Printing & Writing (RHS) Cartonboard (RHS) Newsprint (LHS) Containerboard (RHS) 92

93 Paper, board, and tissue operating rates North America 100% 95% 90% 85% 80% Europe 100% 95% 90% 85% 75% 80% Tissue Newsprint Printing & Writing Containerboard Cartonboard Tissue Newsprint Printing & Writing Containerboard Cartonboard China 100% 90% 80% Asia-Pacific 100% 95% 90% 85% 80% 70% 75% Tissue Newsprint Printing & Writing Containerboard Cartonboard Tissue Newsprint Printing & Writing Containerboard Cartonboard Source: RISI 93

94 1-Dec-07 1-Mar-08 1-Jun-08 1-Sep-08 1-Dec-08 1-Mar-09 1-Jun-09 1-Sep-09 1-Dec-09 1-Mar-10 1-Jun-10 1-Sep-10 1-Dec-10 1-Mar-11 1-Jun-11 1-Sep-11 1-Dec-11 1-Mar-12 1-Jun-12 1-Sep-12 1-Dec-12 1-Mar-13 1-Jun-13 1-Sep-13 1-Dec-13 1-Mar-14 1-Jun-14 1-Sep-14 1-Dec-14 1-Mar-15 Pulp and paper price trends 1,200 1, Eucalyptus pulp (USD/t) Uncoated (USD/t) Testliner (EUR/t) Northern bleached softwood pulp (USD/t) Copy paper (EUR/t) Source: Bloomberg 94

95 31-Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar-15 Historically large spread in pulp prices Pulp prices, Europe: NBSK and BHKP (USD/ton) 1,100 1, Spread at the end of October, 2014: $203 April, 2015: $82 Spread (RHS) NBSK (LHS) BHKP (LHS) NBSK Northern bleached softwood kraft pulp is produced mainly in Canada and the Nordic countries. NBSK is based on long fibre wood species. It adds strength to the final product. BHKP Bleached hardwood kraft pulp, produced e.g. in Brazil and Indonesia, is based on short fibre wood species. It adds softness to the final product. Source: Bloomberg 95

96 Crude oil, steam coal, natural gas and electricity Europe Jan-10 1-Jul-10 1-Jan-11 1-Jul-11 1-Jan-12 1-Jul-12 1-Jan-13 1-Jul-13 1-Jan-14 1-Jul-14 1-Jan-15 CIF ARA steam coal (USD/t) (LHS) Brent crude oil (USD/barrel) (LHS) Natural gas spot price NBP (GBP/therm) (RHS) Jan-10 1-Jul-10 1-Jan-11 1-Jul-11 1-Jan-12 1-Jul-12 1-Jan-13 1-Jul-13 1-Jan-14 1-Jul-14 1-Jan-15 European Energy Exchange, Phelix (EUR/MWh) (LHS) Nordpool Power (EUR/MWh) (LHS) UK Baseload (GBP/MWh) (RHS) Source: Bloomberg 96

97 Crude oil, steam coal, natural gas and electricity United States Jan-10 1-Jul-10 1-Jan-11 1-Jul-11 1-Jan-12 1-Jul-12 1-Jan-13 1-Jul-13 1-Jan-14 1-Jul-14 1-Jan-15 FOB steam coal Richards Bay (USD/t) (LHS) WTI crude oil (USD/barrel) (LHS) Henry Hub gas (USD/MMBtu) (RHS) Jan-10 1-Jul-10 1-Jan-11 1-Jul-11 1-Jan-12 1-Jul-12 1-Jan-13 1-Jul-13 1-Jan-14 1-Jul-14 1-Jan-15 Electricity spot price, PJM (USD/MWh) (LHS) Electricity spot price, NEPOOL (USD/MWh) (LHS) US utility capacity utilization rate (RHS) 70 Source: Bloomberg 97

98 2-Nov-12 2-Dec-12 2-Jan-13 2-Feb-13 2-Mar-13 2-Apr-13 2-May-13 2-Jun-13 2-Jul-13 2-Aug-13 2-Sep-13 2-Oct-13 2-Nov-13 2-Dec-13 2-Jan-14 2-Feb-14 2-Mar-14 2-Apr-14 2-May-14 2-Jun-14 2-Jul-14 2-Aug-14 2-Sep-14 2-Oct-14 2-Nov-14 2-Dec-14 2-Jan-15 2-Feb-15 2-Mar-15 European Carbon Emission Allowance European Energy Exchange (EEX) spot price (EUR/t) Source: Bloomberg 98

99